Tax Tips: Medical Expenses Tax Credit

Canadian taxpayers are allowed to claim their medical expenses as a deduction subject to certain restrictions and limits.  Luckily your root canal and eyeglasses are deductible, but unfortunately your nose job is no longer eligible to be included in your medical expenses (cosmetic surgery was made ineligible as of March 5, 2010) nor is a hot tub that you install in your home, even if prescribed by your doctor.   Eligible medical expenses also have to reach a specific threshold before they can actually start reducing your taxes payable.  Details, pertaining to the medical tax credit, to keep in mind prior to deducting medical expenses are discussed below: 

  • The threshold before you can claim the medical tax credit is the lower of 3% of your net income or $2,052 (for the 2011 taxation year).  Eg.  If you earned $40,000 during the year, your total eligible medical expenses must exceed 3% of 40,000 or $1,200.  If you earned over $67,500 during the year, then your threshold would be $2,024.
  • Spouses and dependents may combine their medical expenses.  Due to the threshold which is calculated as 3% of net income, it is usually beneficial to claim all the medical expenses on the family member’s tax return with the lowest net income.
  • Eligible expenses include dental expenses, premiums paid to PHSPs by small businesses, Laser eye surgery, gluten free products (you will need a letter from a medical practitioner certifying that you have celiac disease) and eyeglasses.  A comprehensive list of eligible medical expenses can be found at the CRA website
  • Ineligible expenses include organic food, birth control expenses, vitamins and supplements and gym memberships. See the full list of ineligible medical expenses.
  • Ensure that you keep all your receipts and medical documentation.  While you do not have to send them if you efile your tax return, it is likely that the CRA will ask for the receipts at a later date.
  • The medical expenses tax credit is 15% for all expenses that exceed the threshold. Eg.  If you are claiming $2,500 of medical expenses and your net income is $40,000, you would receive $(2,500-$1,200) X15% = $195 reduction in your taxes payable. 
  • Medical expenses can be claimed for any 12 month period ending in the calendar year for which you are filing the tax return.  This can help certain individuals exceed the threshold if they incur medical expenses over two years, which are individually not enough to qualify for the credit.
  • Medical expenses incurred outside of Canada are claimable as long as they are supported by appropriate documentation and receipts. 

Although many of us do not have enough medical expenses to qualify for a tax credit, it is always good to keep your receipts and medical documents along with your other tax documents since you never know.  It is possible that the physical and financial pain of a root canal can be somewhat mitigated by having to pay less taxes.

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Ronika Khanna is a Montreal accountant who helps small businesses achieve their financial goals.  To receiveregular updates of articles pertaining to small business, accounting, tax and other topics of interest to business owners you can sign up here.  You can also follow her on Facebook or Twitter.